Pay Down Those Credit Cards, Before Rates Rise Further

Posted January 12, 2018 3:49 p.m. EST

Now that the holiday spending party is over and credit card statements are landing in mailboxes, consumers would be wise to start whittling their balances, financial advisers and analysts say.

Consumers have been spending freely on plastic as the economy motors along. Revolving credit — mostly credit card debt — reached a record $1.023 trillion in November, the Federal Reserve reported this week. (Data for December will be reported in early February.)

Serious card account delinquencies remain relatively low but have been ticking upward. Bruce McClary, spokesman for the National Foundation for Credit Counseling, a nonprofit that oversees a network of agencies offering low-cost or free advice for consumers struggling with debt, said its member offices were seeing more people carrying larger balances from month to month.

“It certainly has our attention,” he said.

Interest rates are expected to keep rising in 2018, meaning that borrowers who carry balances should reduce their card debt to avoid higher costs, said Matt Schulz, senior industry analyst with, a card comparison website.

How to avoid trouble? For starters, stop adding to your card balance except for emergencies, and seek better terms.

“There’s nothing wrong with calling your card issuer to see if you can get a lower rate,” said Bill Hardekopf, chief executive of the card website

He suggests borrowers check their credit report before calling, so they know what kind of a rate they might reasonably expect. And, he advises, “be polite.”

Cutting back on card charges isn’t always easy to do. Julie Ford, a fee-only financial planner in New York City who works with clients in their 20s and 30s, said young adults in big cities could get carried away with lifestyle spending and lose track of their budgets amid social pressure to keep up.

“That super-expensive gym membership becomes normalized,” she said.

January is a good time for consumers to peruse their credit card statements and consider what’s really necessary, Ford said. She urges clients to consider why they got into debt in the first place — was it a one-time medical expense or emergency, or is it a more persistent problem of living beyond their means?

If it’s continuous overspending, Ford suggests clients put off wardrobe updates and suspend those gym memberships, perhaps switching temporarily to jogging. The extra cash can go toward their card balances. Most of her clients can pay off the debt within a year.

“I tell them, ‘This isn’t forever,'” she said.

Lauren Zangardi Haynes, a fee-only planner with Evolution Advisers in Midlothian, Virginia, suggests setting spending limits for any discretionary items to manage card spending. For instance, she said, she cooks at home frequently and enjoys serving wine with meals. So she established a monthly budget for wine and makes a trip each month to buy it all at once; when the wine is gone, that’s it until the next month. Buying wine in bulk means “you get a lot of strange looks,” she said, but helps keep a lid on “budget bleed.”

Here are some questions and answers about paying off credit card debt:

Q: Should I pay down the cards with the highest interest rate, or the highest balance, first?

A: “I always tell people to tackle the highest interest cards first,” Ford said.

Other cards should be put on automatic payment schedules, so at least the minimum monthly payment is made on time. Once the high-rate card is paid down, the borrower shifts extra payments to the card with the next highest rate.

Some research suggests, however, that paying down a small balance — regardless of the rate — can fuel a sense of accomplishment and encourage borrowers to keep going. Either method can work — just choose one that motivates you and forge ahead, . McClary said.

Q: Should I consolidate my credit card debt at a lower rate?

A: Maybe, if you have a plan to pay off the balance. One option for disciplined borrowers with good credit is to transfer balances to a credit card with a zero-percent promotional rate. Some cards are offering initial no-interest periods of as long 15 or 21 months, Schulz said, offering a substantial window to pay down a balance.

Many cards charge balance transfer fees, however, often 3 percent or more of the amount transferred. And if you are 60 days or more days late in paying, you will lose the special rate. Financial planners advise that the approach can backfire if borrowers don’t change their spending habits.

Q: Can debt settlement firms help me shed my card balances?

A: Borrowers should be wary of firms that market the ability to negotiate settlements with card companies on behalf of consumers, the Consumer Financial Protection Bureau says. Such firms may charge hefty fees, whether they are successful in reaching a settlement or not. Often, firms tell borrowers not to make payments on their cards while they negotiate, causing late payments and interest to pile up.

The consumer bureau, which has taken legal action against some debt settlement firms for making misleading claims, offers more tips about the firms on its website.